Biofuel projects struggle to find favour with EIB

www.bioenergy-business.com
12 March, 2008

The European Investment Bank (EIB) lent money to just one biofuel production project in 2007, despite examining more than 50 proposals. However, it sees brighter prospects for "second generation" biofuels made from a wider variety of feedstocks. The EIB has a mandate to support the policy goals of the European Union, which includes a requirement for biofuels to make up 5.75% of transport fuels by 2010, with a proposed target of 10% by 2020. Currently, less than 2% of EU transport fuel is biofuel and the European Commission is doubtful the 2010 target will be reached.

Last year, the EIB lent €168m ($258m) to Associated British Foods to build ethanol plants in the UK, at Wissington and Kingston upon Hull. This represents 0.4% of the EIB's total global lending of €47.8 billion in 2007. The bank has noted that biofuel plants produce fuel that is expensive compared with petroleum fuels and is only considering projects where production costs are lower than average. It also takes other factors, such as the emissions savings over petroleum fuels, into account.

Christopher Knowles, the EIB's head of energy and environment, structured finance and advisory, said: "From the outset we have been very conscious that a lot of biofuels projects were bankable in financial terms, but not in terms of their economic impact, sustainability, vulnerability to commodity prices and social sensitivity. "Looking back at how the sector has performed in the last year, our conviction has been vindicated."

Knowles, who is based at the bank's Luxembourg headquarters, said "a couple" of other proposals for biofuel plants are under consideration, and did not dismiss the idea of funding further plants in future. However, the bank's lending is being directed towards research and development of second generation biofuels, which can be made from a wider variety of food and non-food crops. "We think second generation is going to be the breakthrough in costs and bringing diversity in feedstocks," he said.